What Are the 2 Best Bargain Artificial Intelligence (AI) Stocks to Buy Right Now?

Key Points

• TSMC plays an essential role in the AI process, and it's well diversified across clients and categories.

• Unity Software could tap into some Nvidia-like magic.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

Artificial intelligence (AI) has played a big role in pushing the stock market to new highs, and there are good reasons to think that the tech is still in the early stages of powering huge sales and earnings increases for top players in the category. If you're on the hunt for great AI investment opportunities, read on to see why two Motley Fool contributors identified these stocks as some of the best bargains in the space right now.

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The behind-the-scenes AI giant

Jennifer Saibil (Taiwan Semiconductor): Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC, is one of the most important AI stocks on the market, and it's growing rapidly. However, it trades at a cheap price, making it look like an incredible value.

It's not as "hot" as some of the AI stocks producing the technology that's literally revolutionizing the world, which is why it may fall out of the view of AI investors. However, it's a vital piece of the AI chain, and it has many advantages over other kinds of AI stocks.

At the top of that list is that it works with a large group of AI chip designers, so all of its eggs are spread out into different baskets. It's a chip foundry, and it manufactures the chips that other companies like Nvidia and Advanced Micro Devices design. It's an essential part of the chipmaking process, and its clients need its services to keep producing their chips, which are in high demand right now. When Nvidia gives an update about its contracts, for example, that's also great news for TSMC.

It's also well diversified among categories. It had a robust business long before generative AI landed on the scene, and categories like smartphones, auto, and gaming are important to its operations. But there's no question that AI is playing a large role in its growth today and its future opportunities.

Finally, it's extremely profitable. Revenue increased 44% year over year in the second quarter, and gross margin improved from 53.2% last year to 58.6% this year. Operating margin improved from 42.9% to 49.6%, and net profit margin expanded from 36.8% to 42.7%.

Now for the bargain piece. TSMC stock trades at a forward, 1-year P/E ratio of 23 and a price-to-free cash flow ratio of 44. That's attractive for a company growing as quickly as TSMC and with as much opportunity as it has going forward, and investors can still buy and benefit today.

A potentially explosive comeback story

Keith Noonan (Unity Software): With Nvidia dominating the market for AI graphics processing units (GPUs), it could be easy to forget that the company got its start developing processors to run video games. The AI leader still generates billions in revenue from its gaming GPUs, but the most important part of its business is now processors used in cloud data centers. Nvidia looks poised to continue dominating the AI GPU market, but I think investors should also take a look at another gaming-related player in the artificial intelligence market.

Unity Software (NYSE: U) is a leading provider of game engine services, offering a development framework that makes it easy for creators of varying scales to make interactive entertainment. As part of its game and content creation tools, the company also operates a digital marketing business that allows creators to broaden their reach and integrate advertisements from third-party advertisers.

The company has gone through some rough patches connected to failed growth bets and poorly received monetization initiatives, and its share price is still down 77% from its peak, even after rising 120% over the last year.

Unity brought on a new CEO last year, and the company has recently launched a new AI-powered advertising business that has been powering a resurgence for its digital marketing business. While the business still has a good deal of work to do with its turnaround, sales for its digital ads network increased 15% on a sequential quarterly basis in Q2.

The advertising performance is an encouraging sign that the business's growth engines are ready to start accelerating again, and that's not the only opportunity Unity has in the AI space. Unity could also have huge opportunities to license its data for the training of AI models. Unity probably won't be able to replicate the incredible run posted by Nvidia over the last five years, but its gaming-related strengths could help pave the way for big AI wins.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

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Jennifer Saibil has positions in Taiwan Semiconductor Manufacturing. Keith Noonan has positions in Unity Software. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Taiwan Semiconductor Manufacturing, and Unity Software. The Motley Fool has a disclosure policy.